Turkish gov't to share burden of minimum wage hike with private sector
by Hazal Ateş
ANKARANov 11, 2015 - 12:00 am GMT+3
by Hazal Ateş
Nov 11, 2015 12:00 am
The AK Party's election promise to increase the minimum wage to TL 1,300 worries the private sector about rising costs. The party is now looking for a way like tax exemption to share the burden with companies
The government will examine the effects of the increase in the minimum wage on Jan. 1, 2016 after requests from the business world. Incentives for traditional sectors with low competitive power and low added value are also on the agenda. Burdens, especially on labor-intensive sectors, such as garments, textiles and furniture will be relieved. Tax exemptions, mainly in stamp duties, tax immunities and discounts, will also be taken into consideration. The cancellation of stamp duty, which is currently TL 12.3 ($4.1) for each employee earning minimum wage, will cost the government TL 60 million.Prime Minister Ahmet Davutoğlu was to hold a meeting with various representatives from trade and employers' unions to discuss the minimum wage. Türk-İş, which supports increasing the minimum wage to TL 1,300, is also asking for support from the business world and the business world is demanding that the tax burdens on wages be eased. The business world is to present a report on the labor and operation costs related to the minimum wage and request the cancellation of stamp duties and discounts on income tax and employers' contributions in all wage brackets if the minimum wage is increased. Employers claim that together with transportation and meals, the current minimum wage's cost burden for employers is TL 2,000 and this figure will increase to TL 2,500 if the minimum wage increases by TL 300.
President of Turkish Exporters' Association, Mehmet Büyükekşi said that they have few suggestions regarding taxes and while they support the discussed increase, they believe the tax burdens on employment need to be eased as well. Claiming that the regional minimum wage is against the Constitution, Büyükekşi underlined that incentives for labor-intensive industries and sectors will not be enough to lift the additional burden that employers will have to assume.
If a discount is not applied for social security premiums and taxes when the minimum wage is increased to TL 1,300, the cost of one worker, which is TL 1,496, will increase to TL 1,935; an additional cost of TL 439 for employers. Further, the total deductions from the gross minimum wage of TL 1,647 will be TL 345. While the highest tax deducted is the income tax at TL 86, the stamp duty is TL 12.30. Since there are around 5 million workers earning minimum wage in the private sector, the government will have to pay TL 400 million if the income tax on the minimum wage is cancelled and TL 60 million if the stamp duty is cancelled; in total an additional bill of TL 460 million will have to be paid by the government.
The economic administration is looking to reduce the premium burden on minimum wages with incentives similar to five-point common incentives, instead of launching a direct tax reduction. Finance Minister Mehmet Şimşek recently said that some burdens stemming from a hike in minimum wages might be temporarily shared with the state but the burden will be on the private sector at large. The government will present its offer on minimum wages to the Minimum Wage Determination Commission in December. With a 30 percent increase in minimum wages, its ratio to national income will near 57 percent in the new year.
As part of the new system, the minimum wage will be re-determined for employees engaged in highly hazardous occupations. The gross minimum wage will rise to TL 1,647 in the new year. Wages for employees engaged in less dangerous professions will remain on the base level and highly hazardous occupations will be re-classified. Those working in leather factories, the mineral oil sector, the organic chemical and dye production sector and nuclear reactors and parts manufacturing sectors, as well as bombs and missiles manufacturing sector, will be paid higher minimum wages.
İTO asks for reduction of social security premiumsIstanbul Chamber of Commerce (İTO) President İbrahim Çağlar said the rise of the net minimum wage to TL 1,300 will cause an additional monthly expenditure of TL 437 per capita for employers and TL 16 billion for the whole private sector, suggesting that employers must be offered a three-point reduction in social security premium payments for a certain period in order to overcome this burden.
The rise of minimum wages will invigorate both the labor force and domestic market, Çağlar said, adding that a three-point reduction in minimum wage social security premiums will relieve employers who pay taxes regularly. Expressing the business community's expectation for government support, Çağlar said this three-point reduction must be launched not permanently, but for a certain time until trade gets back on track. This is necessary to avoid foiling employers' budgets that help Turkey achieve its growth targets.